Collicutt Energy Services Ltd.
TSX : COH

Collicutt Energy Services Ltd.

November 09, 2006 16:44 ET

Collicutt Energy Services Ltd. Announces its Third Quarter 2006 Earnings

CALGARY, ALBERTA--(CCNMatthews - Nov. 9, 2006) - Collicutt Energy Services Ltd. (TSX:COH):

We are pleased to present our third quarter report of 2006.

Basic and diluted earnings per share for the quarter ended September 30, 2006 increased 81.8%, yielding 20 cents per share compared to 11 cents per share for the same period of 2005.

Revenues from July to September increased to $45.3 million from $34.1 million in the third quarter of 2005. Gross profits improved by $2.8 million over the third quarter of 2005. Net earnings for the three months ended September 30, 2006 were $2.0 million, an increase of $0.9 million from the third quarter of 2005.

Another strong quarter reflects the success of several initiatives implemented before and during the period. We are pleased with the enhancements made to our branch network with the welcomed addition of FIELDCO of Rimbey, Alberta and MLR Mechanical Services Ltd. (MLR) with operations in Red Deer, Stettler and Drumheller, Alberta. As anticipated, these acquisitions brought further improvements to our facility optimization and service reach. Our growing Service Division team are well positioned for the future.

The Fabrication Division reached a new record for revenue in the third quarter and continues to reap the benefits of manufacturing process improvements. These initiatives, along with a talented team, have been the key drivers that continue to make Collicutt Energy Services Ltd. a solid competitor in the industry.

Demonstrating our commitment to employee satisfaction has taken different forms over our 20 years in business. Whether through mentorship, apprenticeship training, or incentive programs, our management team has intensified its focus to bring meaningful programs to deepen job satisfaction and employee commitment. Part of this focus is the development of two employee incentive programs that we were pleased to roll out during the third quarter: the Employee Share Ownership Plan and the Collicutt Sharing Improvements Plan (CSI Plan).

The Employee Share Ownership Plan offers employees interest-free loans up to $5,000 per year to purchase Collicutt Energy Services Ltd. stock through the Toronto Stock Exchange (stock symbol: COH). The loans are paid back by employees through payroll deductions over a two-year period with the Company paying the brokerage fees. Increasing employee share ownership is intended to align the employees' goals with the results of the Company.

The CSI Plan allows all full-time employees to participate in the improved financial and operating results of the Company. Based on specific measures within each employee group, the CSI Plan offers a range of possible pay-outs for reaching pre-determined target areas that directly impact the Company's earnings. The CSI Plan commenced on September 1, 2006 and will run through to December 31, 2006, at which time renewal details for 2007 will be announced.

We look at these most recent employee programs we have announced as forming a platform for the future to enhance employee engagement in the Company for the long-term. Building our futures together will continue to be a key goal of the organization.

As we head into the final quarter of 2006, the Board of Directors, the management team and I would like to express our heartfelt thanks to our employees, our customers, and our shareholders for their part in bringing this quarter to a strong close. We look forward to a vibrant fourth quarter and a strong finish to an exciting year.

STEVEN M. COLLICUTT, President and Chief Executive Officer, November 9, 2006

MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

The following constitutes management's opinion concerning the Company's operating and financial results for the three and nine month periods ended September 30, 2006 and its outlook based on current available information and expectations as at November 9, 2006. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and the MD&A in the Company's Annual Report for the year ended December 31, 2005. The following discussion includes forward-looking statements that involve certain risks and uncertainties and require management to make certain assumptions which if not held will produce different results than these statements have indicated. Additional information regarding the risks and uncertainties significant to the Company are provided in the Annual Information Form (AIF). Additional information is also available on the Company's website (www.collicutt.com) and all previous public filings, including the Annual Information form (AIF), are available through SEDAR (www.sedar.com).

The terms "Company", "we", "our" and "us", when used in this report, refer to Collicutt Energy Services Ltd. and its subsidiaries except where indicated.

EXECUTIVE OVERVIEW

Collicutt Energy Services Ltd. has two business segments - Service and Fabrication. The Service Division maintains, repairs and refurbishes natural gas compression and power generation equipment. The Fabrication Division designs, assembles, and leases natural gas compression packages, power generation systems and oilfield production equipment. The Company is geographically focused within Western Canada, but does complete a number of projects globally, particularly within the Fabrication Division.



EARNING HIGHLIGHTS
($000s - Unaudited - Prepared by Management)

2006 2005
------------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1
------------------------------------------------------------
Revenue
Service 16,465 15,517 16,981 12,357 11,287 14,534 10,073
Fabrication 28,824 21,934 24,804 27,359 22,847 21,447 21,086
------------------------------------------------------------
45,289 37,451 41,785 39,716 34,134 35,981 31,159

Gross profit 8,617 7,263 7,053 6,943 5,769 5,241 3,546
Gross profit
percentage 19.03% 19.39% 16.88% 17.48% 16.90% 14.57% 11.38%

EBITDA(1) 4,383 3,685 3,619 3,340 2,923 2,138 2,108

Net earnings 2,033 1,763 1,597 1,436 1,149 669 748
Capital
expenditures and
business
acquisitions 515 3,489 593 1,050 388 589 682

(1) EBITDA is calculated from the consolidated statement of earnings as
revenue less cost of sales, operating and general and administrative
expenses and other income and is used to assist management and
investors in assessing the Company's ability to generate cash from
operations. EBITDA is a non-GAAP earning measure that does not have any
standardized meaning prescribed by GAAP and may not be comparable to
similar measures provided by other companies.


Strong sales performance in both the Service and the Fabrication divisions led to the posting of another healthy quarter. Gross revenues for the quarter were the highest in the history of the Company and $7.8 million above the second quarter of 2006. Year-over-year third quarter revenues increased by $11.2 million while year-to-date revenues increased by $23.2 million from 2005. Revenues for the quarter are the result of the Company's continued focused on managing the growing labour shortage that continues to be a common impediment to growth in the industry.

Gross profit of $8.6 million for the third quarter of 2006 increased by $2.8 million, from $5.8 million in the third quarter of 2005. In the third quarter, inventory levels were reduced as inventory improvements continued to be a focus of management. This focus will remain until inventory turns reach a level in line with the industry while still meeting our customers' needs. Also in the quarter, the move of Simpower Ltd., in Maple Ridge, British Columbia to a new facility was completed resulting in further efficiencies with respect to facility expenditures.

EBITDA realized an increase of $0.7 million in the third quarter of 2006 to $4.4 million from $3.7 million in the second quarter of this year, resulting in the tenth consecutive quarter of growth. From the third quarter of 2005 to the third quarter of 2006 EBITDA increased $1.5 million to $4.4 million.

Net earnings also reached a record $2.0 million in the third quarter of 2006. Net earnings in the third quarter improved $0.3 million or 15.3% from the second quarter of 2006 and increased $0.9 million or 76.9% from the third quarter of 2005.

Capital Expenditures and Business Acquisitions were $0.5 million in the third quarter of 2006. Capital expenditures in the third quarter of 2006 included $0.2 million incurred to complete the building in Fort Nelson.

In June 2006, the Normal Course Issuer Bid (NCIB), authorized by the board of directors in May of 2005, was renewed due to the belief that the market price of the Company's shares fail to reflect their true underlying value. Under the NCIB that ended on June 19, 2006, 541,800 shares were purchased and cancelled. The NCIB was renewed effective June 20, 2006 and will expire on June 19, 2007. Under the renewed NCIB, the Company may purchase from time to time as it considers advisable, up to 520,000 of the issued and outstanding common shares of the Company on the open market through the facilities of the Toronto Stock Exchange. From June 20, 2006 to November 9, 2006 250,500 shares have been purchased and cancelled under the NCIB. The purchase of shares for cancellation will further increase the proportionate interest of and may be advantageous to all remaining shareholders. Copies of the "Renewal Notice of Intention to Make a Normal Course Issuer Bid" of the Company dated June 16, 2006 pursuant to which the Bid is made, may be obtained by shareholders without charge by contacting the Company.



COMMON SHARE INFORMATION
($000s except per share data - Unaudited - Prepared by Management)

2006 2005
------------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1
------------------------------------------------------------
Per share
- basic earnings 0.20 0.17 0.15 0.13 0.11 0.06 0.07
- diluted earnings 0.19 0.16 0.15 0.13 0.11 0.06 0.07
- book value 5.51 5.33 5.20 5.06 4.91 4.80 4.73

Shares Outstanding
- average basic 10,263 10,540 10,736 10,809 10,888 10,913 10,913
- average diluted 10,677 10,794 10,922 10,949 10,943 10,940 10,969
- end of period 10,099 10,402 10,570 10,783 10,861 10,892 10,913

- end of period
share options 770 775 557 552 570 557 592

Market
Capitalization 68,812 68,130 60,779 53,809 38,012 23,200 26,847
---------------------------------------------------------------------------


Third quarter basic earnings per share increased 81.8% from 11 cents per share for the three months ended September 30, 2005 to 20 cents per share for the three months ended September 30, 2006. Basic earnings per share for the nine months ended September 30, 2006 was 51 cents per share. As at September 30, 2006 the book value of the Company was $5.51 per share, or $55.6 million, versus the book value of $4.91 or $53.3 million at September 30, 2005.




BALANCE SHEET SUMMARY
($000s except per share data - Unaudited - Prepared by Management)

2006 2005
------------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1
------------------------------------------------------------

Total assets 115,587 119,539 104,851 102,277 104,322 118,743 103,729

Total debt 59,929 64,119 49,915 47,759 50,994 66,443 52,062

Shareholders'
equity 55,658 55,420 54,936 54,518 53,328 52,300 51,667

Debt to equity 1.08 1.16 0.91 0.88 0.96 1.27 1.01

Total interest
bearing debt 28,538 31,738 20,106 22,275 25,287 30,383 24,937
---------------------------------------------------------------------------


Total interest bearing debt decreased by $3.2 million to $28.5 million at September 30, 2006, from $31.7 million at June 30, 2006. The decrease in interest bearing debt in the third quarter was due to $2.9 million in cash flow generated from operations before changes in non-cash working capital, $2.7 million from reduced working capital partially offset by $1.9 million in share repurchases and capital expenditures totalling $0.5 million.



CONSOLIDATED
($000's - Unaudited- Prepared by Management)

Three months ended Nine months ended
---------------------------------------------------
---------------------------------------------------
September September September September
30, 2006 30, 2005 30, 2006 30, 2005
---------------------------------------------------
Revenue 45,289 34,134 124,525 101,274

Gross profit 8,617 5,769 22,933 14,556

Gross profit % 19.03% 16.90% 18.42% 14.37%

General and
administrative 4,283 2,873 11,441 9,007

Interest 412 339 1,111 1,023

Net earnings 2,033 1,149 5,393 2,566

EBITDA (1) 4,383 2,923 11,687 7,169

Capital expenditures
and business acquisitions 515 388 4,597 1,659

(1) EBITDA is calculated from the consolidated statement of earnings as
revenue less cost of sales, operating and general and administrative
expenses and other income and is used to assist management and
investors in assessing the Company's ability to generate cash from
operations. EBITDA is a non-GAAP earning measure that does not have any
standardized meaning prescribed by GAAP and may not be comparable to
similar measures provided by other companies.


Consolidated revenues for the third quarter of 2006 increased by $7.8 million from the second quarter. Year over year third quarter revenues increased by 32.7% or $11.2 million. The Service and Fabrication divisions realized year over year third quarter increases in gross revenues of $5.2 million and $6.0 million respectively. Year to date revenues for the nine months ended September 30, 2006 of $124.5 million increased $23.3 million from the prior year. The Service and Fabrication divisions increased revenues by $13.1 million and $10.2 million respectively from the first three quarters of 2005 to the first three quarters of 2006.

Consolidated gross profit increased $2.8 million in the third quarter of 2006 to $8.6 million versus $5.8 million in the third quarter of 2005. Year-over-year third quarter gross profit as a percentage of revenue was up 2.1% of revenue to 19.0% in 2006 from 16.9% for the same period of 2005. Consolidated gross profit for the first nine months of 2006 increased $8.3 million from $14.6 million in 2005 to $22.9 million in 2006. Year to date gross profit expressed as a percentage of revenue increased 4.0% of revenue from 14.4% at September 20, 2005 to 18.4% at September 30, 2006.

Consolidated general and administrative expenses increased by $1.4 million to $4.3 million in the third quarter of 2006 from $2.9 million for the third quarter of 2005. The increase was principally the result of increased staff, employee bonuses and increased bad debt provisions. Year to date general and administrative expenses increased $2.4 million from $9.0 million for the first nine months of 2005 to $11.4 million in 2006. The year to date increases in general and administrative expenses from 2005 to 2006 were principally the result of increased salaries, employee bonuses and facility costs.

Interest expense increased $0.1 million from $0.3 million in the third quarter of 2005 to $0.4 million in the third quarter of 2006. Year to date interest expense increased $0.1 million from $1.0 million in 2005 to $1.1 million in 2006. The increases are consistent with the year-over-year increase in interest rates and slightly higher borrowing levels.

Consolidated net earnings increased $0.9 million to $2.0 million in the third quarter of 2006 from net earnings of $1.1 million for the third quarter of 2005. Year to date consolidated net earnings realized an increase of 112.1%, or $2.8 million, from $2.6 million in 2005 to $5.4 million for the same nine month period of 2006.

Capital expenditures and business acquisitions of $4.6 million for the nine months ended September 30, 2006 were $2.9 million higher than the same period of 2005. This increase was attributable mainly to the new facilities in Fort Nelson, British Columbia and Rimbey, Alberta and the addition of FIELDCO of Rimbey, Alberta and MLR Mechanical Services Ltd. (MLR) with operations in Red Deer, Stettler and Drumheller, Alberta.

Related party transactions - there were no significant related party transactions in the first nine months of 2006 or during the 2005 fiscal year.



SERVICE DIVISION

($000's - Unaudited- Prepared by Management)
---------------------------------------------------
Three months ended Nine months ended
---------------------------------------------------
---------------------------------------------------
September September September September
30, 2006 30, 2005 30, 2006 30, 2005
---------------------------------------------------
Revenue 16,465 11,287 48,963 35,894

Earnings before interest
and income tax ("EBIT") 2,487 878 6,322 3,008


Service Division revenues are generated from a network of 12 branches located across Western Canada. Year over year, revenues increased by $5.2 million to $16.5 million in the third quarter of 2006 from $11.3 million in the third quarter of 2005. Year to date revenues increased $13.0 million from $36.0 million for the nine months ended September 30, 2005 to $49.0 million for the first nine months of 2006.

The division continues to focus on increasing market share and improving employee retention. The successful acquisition in the second quarter of 2006 of the assets of MLR Mechanical Services Ltd. expanded staffing and operations in Drumheller and Red Deer, Alberta and created the newest branch addition to the division in Stettler, Alberta. The acquisition of the assets of FIELDCO's Rimbey branch allowed for fast expansion in that area as well as providing much needed skilled labour. These acquisitions brought enhancements to the Company's network to better reach and expand our customer base within Alberta.

EBIT increased by $1.6 million in the third quarter of 2006 to $2.5 million from $0.9 million in the third quarter of 2005. In the first nine months of 2006 EBIT increased by $3.3 million from $3.0 million in the first three quarters of 2005 to $6.3 million in the first three quarters of 2006.

Gross profit as a percentage of revenue in the third quarter of 2006 was 7.7% higher than the third quarter of 2005. Year to date gross profit as a percentage of revenue was 3.3% higher than in 2005. Gross profit is higher than prior quarters due to the significantly higher sales volumes in 2006.



FABRICATION DIVISION
($000's - Unaudited- Prepared by Management)

Three months ended Nine months ended
---------------------------------------------------
---------------------------------------------------
September September September September
30, 2006 30, 2005 30, 2006 30, 2005
---------------------------------------------------
Revenue 28,824 22,847 75,562 65,380

Earnings before interest
and income tax ("EBIT") 2,062 1,888 5,481 2,175


Fabrication Division revenues for the third quarter of 2006 increased $6.0 million to $28.8 million from $22.8 million in the third quarter of 2005. Higher revenue levels were experienced for new compression and power generation equipment as well as custom fabrication. The division continues to benefit from the key business relationships it has fostered and the experienced manufacturing and sales team. New rental gas compression equipment is in production with a ramping up in rental equipment expected into 2007.

EBIT increased $0.2 million, from $1.9 million in the third quarter of 2005 to $2.1 million in the third quarter of 2006. During the first nine months of 2006 EBIT increased $3.3 million to $5.5 million at September 30, 2006 from $2.2 million at September 30, 2005. A strategic focus on key strengths in high horsepower applications has been reflected in continually improving results. In 2006, the division has continued its commitment to improve the utilization of plant resources, process improvements, lean manufacturing initiatives, and high quality standards.

Gross profit as a percentage of revenue for the third quarter of 2006 was 1.5% lower than the third quarter of 2005. Gross profit as a percentage of revenue decreased in the third quarter of 2006 from the third quarter of 2005 due to higher inventory obsolescence expense in 2006. Year to date gross profit as a percentage of revenue was 3.7% higher than in 2005. Gross profit has improved in 2006 as the result of improved project management and market pricing.



LIQUIDITY AND CAPITAL RESOURCES
($000's -- Unaudited- Prepared by Management)

Three months ended Nine months ended
---------------------------------------------------
---------------------------------------------------
September September September September
30, 2006 30, 2005 30, 2006 30, 2005
---------------------------------------------------
---------------------------------------------------
Cash flow from operations 2,895 2,084 7,729 3,991

Reduction (increase) in
non-cash working capital 2,675 3,178 (5,063) (2,376)

Repurchase of share capital (1,861) (126) (4,334) (175)

Cash invested in business
acquisitions - - (1,650)

Cash (invested in)
received from
acquisition and disposal
of capital assets (515) (40) (2,947) 4,124

---------------------------------------------------
Reduction (increase) in
interest bearing debt 3,194 5,096 (6,265) 5,564

Repayment of long-term
debt (267) (378) (595) (1,121)

---------------------------------------------------
Reduction (increase) in
operating loan 2,927 4,718 (6,860) 4,443

---------------------------------------------------------------------------


Cash flow generated from operations, before changes in non-cash working capital, increased by $0.8 million in the third quarter of 2006 to $2.9 million, compared to $2.1 million generated in the third quarter of 2005. In the first nine months of 2006 cash flow generated from operations increased $3.7 million to $7.7 million from $4.0 million in 2005.

Total interest bearing debt decreased by $3.2 million to $28.5 million at September 30, 2006, from $31.7 million at June 30, 2006. The decrease in interest bearing debt in the third quarter was due to $2.9 million in cash flow generated from operations, $2.7 million from reduced working capital partially offset by $1.9 million in share repurchases under the NCIB and capital expenditures totalling $0.5 million. The $2.7 million reduction in working capital consisted primarily of a $3.8 million reduction in inventory and work-in-progress, a $1.7 million increase in accounts payable and accrued liabilities, an increase in income taxes payable of $1.1 million, partially offset by a $3.6 million reduction in deferred revenue. The Company has continued to focus staff and resources on inventory management and improve the timeliness of accounts receivable collections.



WORKING CAPITAL

($000's - Unaudited- Prepared by Management)

As at
-------------------------------------
September 30, 2006 December 31, 2005
-------------------------------------
Working capital 29,746 22,969

-------------------------------------
Operating loan 18,538 11,679

Current portion of long-term debt 1,121 1,513

Non-current portion of callable
long-term debt - 8,420

Long-term debt 8,879 663
-------------------------------------
Total interest bearing debt 28,538 22,275

-------------------------------------
Total interest bearing debt to equity .51 .41
---------------------------------------------------------------------------


The Company has an available operating loan of $32.0 million (December 31, 2005 and September 30, 2005: $38.0 million). As at September 30, 2006, $18.5 million had been drawn (December 31, 2005: $11.7 million; September 30, 2005: $14.3 million). Management is confident that this level of financing, combined with cash flow generated from operations, is sufficient to fund operational activities for the foreseeable future.

During the second quarter of 2006, the Company negotiated a new credit facility with the Company's existing lender. The existing term loans were replaced with a non-revolving term loan within a committed borrowing facility. The new non-revolving term loan has a ten-year amortization and has been classified as current and long-term debt. In compliance with CICA Emerging Issues abstract, the non-current portion of the replaced term loans had a callable feature that reclassified them to current liabilities.

National Instrument 51-102 Continuous Disclosure Obligations

Notice

Pursuant to Part 4.3 (3) of National Instrument 51-102, these unaudited consolidated financial statements of Collicutt Energy Services Ltd. for the three and nine month periods ended September 30, 2006 have not been reviewed by the Company's auditors.



CONSOLIDATED BALANCE SHEET
($000's - Unaudited- Prepared by Management)

---------------------------------------------------------------------------
As at
--------------------------
September December
30, 31,
2006 2005
--------------------------
--------------------------
ASSETS

Current
Accounts receivable (Note 3) 37,276 27,714

Inventory and work-in-progress 41,757 41,088

Prepaid expenses and deposits 805 218

Future income taxes 426 276
--------------------------
80,264 69,296

Property, plant and equipment 35,323 32,981
--------------------------
115,587 102,277
--------------------------
--------------------------

LIABILITIES

Current
Operating loan 18,538 11,679

Accounts payable and accrued liabilities 12,926 10,365

Income taxes payable 2,126 1,509

Deferred revenue 15,807 12,841

Current portion of long-term debt (Note 3) 1,121 1,513

Non-current portion of callable
long-term debt (Note 3) - 8,420
--------------------------
50,518 46,327

Long-term debt (Note 3) 8,879 663

Future income taxes 532 769
--------------------------
59,929 47,759
--------------------------

SHAREHOLDERS' EQUITY

Share capital (Note 4) 37,404 40,001

Contributed surplus - 117

Retained earnings 18,254 14,400
--------------------------
55,658 54,518
--------------------------
115,587 102,277
--------------------------
--------------------------

Steven M. Collicutt Peter. A. Lacey
Director Director

Approved by the Board of Directors


CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
($000s except share and per share data - Unaudited - Prepared by
Management)

---------------------------------------------------------------------------
Three Months Ended Nine months ended

September September September September
30, 30, 30, 30,
2006 2005 2006 2005
---------------------------------------------
Sales 45,289 34,134 124,525 101,274
Cost of goods sold 36,672 28,365 101,592 86,718
---------------------------------------------
Gross profit 8,617 5,769 22,933 14,556
Other income (Note 5) 49 27 195 1,620
---------------------------------------------
8,666 5,796 23,128 16,176
---------------------------------------------
Expenses
General and administration 4,283 2,873 11,441 9,007
Interest 412 339 1,111 1,023
Amortization 798 806 2,363 2,277
---------------------------------------------
5,493 4,018 14,915 12,307
---------------------------------------------

Earnings before income taxes 3,173 1,778 8,213 3,869
---------------------------------------------

Income tax (recovery) expense
Current 1,584 660 3,207 758
Future (444) (31) (387) 545
---------------------------------------------
1,140 629 2,820 1,303
---------------------------------------------
Net earnings 2,033 1,149 5,393 2,566
Retained earnings,
beginning of period 16,776 11,815 14,400 10,398
Share repurchase costs (555) - (1,539) -
---------------------------------------------
Retained earnings, end of
period 18,254 12,964 18,254 12,964
---------------------------------------------
---------------------------------------------
Earnings per share (Note 2)
- basic 0.20 0.11 0.51 0.24
- diluted 0.19 0.11 0.48 0.23

Weighted average number of
common shares
- basic 10,262,878 10,888,047 10,561,296 10,904,289
- diluted 10,677,086 10,942,820 11,343,024 10,937,588


CONSOLIDATED STATEMENT OF CASH FLOWS
($000s except share and per share data - Unaudited - Prepared by
Management)

---------------------------------------------------------------------------
Three Months Ended Nine months ended

September September September September
30, 30, 30, 30,
2006 2005 2006 2005
---------------------------------------------
Cash flows related to the
following activities
Operating
Net earnings for the period 2,033 1,149 5,393 2,566
Adjustments for:
Amortization 798 806 2,363 2,277
Gain on sale of assets (8) (5) 6 (1,536)
Stock based compensation
expense 84 5 100 10
Future income tax (recovery)
expense (444) (31) (387) 624
Provision for warranty costs 432 160 254 50
---------------------------------------------
2,895 2,084 7,729 3,991
Net change in non-cash
working capital 2,675 3,178 (5,063) (2,376)
---------------------------------------------
5,570 5,262 2,666 1,615
---------------------------------------------

Financing
Repurchase of share capital (1,861) (126) (4,334) (175)
(Repayment) advances of
operating loan (2,927) (4,718) 6,860 (4,443)
Advances of long-term debt - - 9,500 -
Repayment of long-term debt (267) (378) (10,095) (1,121)
---------------------------------------------
(5,055) (5,222) 1,931 (5,739)
---------------------------------------------

Investing
Business acquisitions (Note 8) - - (1,650) -
Purchase of property, plant
and equipment (515) (388) (2,947) (1,659)
Proceeds on disposition of
property, plant and
equipment - 348 - 5,783
---------------------------------------------
(515) (40) (4,597) 4,124
---------------------------------------------

Net decrease in cash and cash
equivalents - - - -
Cash and cash equivalents,
beginning of period - - - -
---------------------------------------------
Cash and cash equivalents,
end of period - - - -
---------------------------------------------
---------------------------------------------
Supplementary cash flow items

Interest paid 388 337 1,090 1,003
Interest received 9 5 41 32
---------------------------------------------
---------------------------------------------

Income taxes paid 482 7 2,690 73
Income taxes refunded - 44 - 599
---------------------------------------------
---------------------------------------------


SEGMENTED INFORMATION
($000s except share and per share data - Unaudited - Prepared by
Management)

---------------------------------------------------------------------------
Three Months Ended Nine months ended

September September September September
30, 30, 30, 30,
2006 2005 2006 2005
---------------------------------------------
---------------------------------------------
Revenue
Service 16,465 11,287 48,963 35,894
Fabrication 28,824 22,847 75,562 65,380
---------------------------------------------
45,289 34,134 124,525 101,274
---------------------------------------------

Amortization
Service 402 368 1,224 1,059
Fabrication 320 358 927 1,062
Corporate 76 80 212 156
---------------------------------------------
798 806 2,363 2,277
---------------------------------------------

Earnings (loss) before
interest and income taxes
Service 2,487 878 6,322 3,008
Fabrication 2,062 1,888 5,481 2,175
Corporate (1,376) (649) (3,590) (291)
---------------------------------------------
3,173 2,117 8,213 4,892
---------------------------------------------

Capital expenditures and
business acquisitions
Service 335 159 4,007 671
Fabrication 62 57 326 445
Corporate 118 172 264 543
---------------------------------------------
515 388 4,597 1,659
---------------------------------------------

As at
September December
30, 31,
2006 2005
---------------------------------------------
---------------------------------------------
Assets
Service 48,693 38,447
Fabrication 44,236 40,481
Corporate 22,658 23,349
---------------------------------------------
115,587 102,277
---------------------------------------------
---------------------------------------------


NOTES TO FINANCIAL STATEMENTS

NOTE 1: ACCOUNTING POLICIES

The unaudited interim consolidated financial statements should be read in conjunction with the unaudited consolidated financial statements contained in the Annual Report for the year ended December 31, 2005 as they do not contain all of the disclosures required for annual financial statements. The interim consolidated financial statements have not been reviewed by the Company's auditors. These unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles. All financial summaries included are presented on a comparative and consistent basis showing the figures for the corresponding period in the preceding year. The preparation of the unaudited interim consolidated financial statements is based on accounting principles and methods of application consistent with those used in the preparation of the most recent annual financial statements. In the opinion of the Company, these unaudited interim financial statements contain all necessary adjustments to present a fair statement of the results of the interim periods presented.



NOTE 2: BASIC AND DILUTED EARNINGS PER SHARE
($000s except share and per share data - Unaudited - Prepared
by Management)


THREE MONTHS ENDED
September 30, 2006 September 30, 2005
--------------------------------------------------------

Net Shares Per Net Shares Per
Earnings share Earnings share

Basic earnings
per share 2,033 10,262,878 0.20 1,149 10,888,047 0.11

Dilutive effect
of stock option
conversions 414,208 54,773

Diluted earnings
per share 2,033 10,677,086 0.19 1,149 10,942,820 0.11

Options and warrants
excluded from diluted
income per common
share as their
effect could be
anti-dilutive 508,500 321,500


NINE MONTHS ENDED
September 30, 2006 September 30, 2005
--------------------------------------------------------

Net Shares Per Net Shares Per
Earnings share Earnings share

Basic earnings
per share 5,393 10,561,296 0.51 2,566 10,904,289 0.24

Dilutive effect
of stock option
conversions 781,728 33,299

Diluted earnings
per share 5,393 11,343,024 0.48 2,566 10,937,588 0.23

Options and warrants
excluded from diluted
income per common
share as their
effect could be
anti-dilutive 508,500 379,500


NOTE 3: FINANCIAL INSTRUMENTS

To mitigate its exposure to fluctuations in interest rates, the Company entered into an interest rate swap arrangement to fix the interest rate on $9,237 of its long-term debt at 6.66%, inclusive of bank stamping fees of 1.75%, in the second quarter of 2006. The fair value of the interest rate swap contracts at September 30, 2006 approximates the carrying value (December 31, 2005: negative $23). This arrangement matures May 31, 2011.

The Company purchases foreign exchange forward contracts as a hedge against certain US dollar denominated sales and purchases and the related accounts receivable and payable. At September 30, 2006 the Company held forward contracts with a face value of $16,650 (December 31, 2005: $6,420). These derivative financial instruments are accounted for using the fair value method. The foreign exchange translation gains and losses on these instruments are accrued under accounts receivable on the balance sheet and recognized currently in cost of sales as foreign exchange gains/losses. The forward premium or discount on forward exchange contracts is recognized in cost of sales at the time the sale is recognized. The change in fair value of the foreign exchange contracts for the quarter ended September 30, 2006 resulted in a gain of $44.



NOTE 4: SHARE CAPITAL

Authorized
Unlimited number of voting common shares
Unlimited number of First Preferred shares, issuable in series, without
nominal or par value. Unlimited number of Second Preferred shares, issuable
in series, without nominal or par value.

As at (Unaudited - Prepared by Management)

September 30, 2006 December 31, 2005
---------------------------------------------------
Common Amount Common Amount
Issued shares (000)'s shares (000)'s
---------------------------------------------------
Balance, beginning
of year 10,783,415 40,001 10,913,215 40,500
Stock options exercised 32,429 180 12,000 27
Common shares purchased (717,000) (2,777) (141,800) (526)
---------------------------------------------------
Balance, end of period 10,098,844 37,404 10,783,415 40,001
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The Company under a normal course issuer bid ("NCIB") had the ability to purchase from time to time, as it considered advisable, up to 545,000 of the issued and outstanding common shares of Collicutt Energy Services Ltd. on the open market through the facilities of the Toronto Stock Exchange. The bid commenced on June 20, 2005 and expired on June 19, 2006. From January 1, 2006 to June 19, 2006 the Company purchased and later cancelled 400,000 common shares at an average price of $6.29, for a total cost of $2,514, including commissions, pursuant to the issuer bid.

The NCIB was renewed effective June 20, 2006 and will expire on June 19, 2007. Under this renewed NCIB, the Company may purchase from time to time, as it considers advisable, up to 520,000 of the issued and outstanding common shares of the Company on the open market through the facilities of the Toronto Stock Exchange. During the period ending September 30, 2006, the Company purchased and later cancelled 235,000 common shares at an average price of $6.61, for a total cost of $1,554, including commissions, pursuant to the issuer bid.

NOTE 5: ASSETS HELD FOR RESALE

The lands held for resale were sold June 2005 for $400 resulting in a gain on sale of $100 which has been included in Other Income for the year ended December 31, 2005. In 2004, $400 for land, as well as the Red Deer Service facility with a value of $3,500, were included in assets held for resale. The Red Deer Service facility was sold in February 2005 for total proceeds of $4,800 resulting in a gain on sale of $1,300, which has also been included in Other Income for the year ended December 31, 2005.

NOTE 6: CONTINGENCIES

The Company is involved in various litigation matters arising in the ordinary course of business, of which no provision has been made in the financial statements. Management is of the opinion that any resulting net settlement would not materially affect the financial position, results of operations, or liquidity of the Company.

NOTE 7: INTEREST IN JOINT VENTURE

The Company proportionately consolidates its 50% share of assets, liabilities and results of operations of its joint venture in Fort Nelson, British Columbia. The joint venture is a jointly controlled asset that has resulted in a new building. Construction of the building was substantially completed in the second quarter of 2006.



Years ended December 31, September 30, 2006 December 31, 2005
---------------------------------------------------

Balance Sheet
Current assets 87 48
Long-term assets 2,164 739
Current liabilities 239 377
Long-term liabilities and equity 2,012 410

Income Statement
Revenue 27 -
Expenses 16 1
Net income(loss) 11 (1)


NOTE 8: ACQUISITIONS

During the second quarter, the Company acquired two businesses totalling $1,800, including $1,650 of cash and common stock valued at $150.

On June 22, 2006, the Company acquired the assets of MLR Mechanical Services Ltd. (MLR) of Red Deer, Alberta. The results of MLR's operations have been included in the consolidated financial statements since that date. MLR repaired and serviced natural gas compression equipment through three branches in Drumheller, Stettler and Red Deer, Alberta.

The aggregate purchase price was $1,300, including $1,150 of cash and common stock valued at $150.

The estimated fair value of the assets acquired at the date of acquisition was $1,300. No liabilities were assumed at the date of acquisition.

On May 15, 2006, the Company acquired the assets of the Rimbey, Alberta gas compression, parts, service and machining branch of FIELDCO of Edmonton, Alberta. The results of the Rimbey branch operations have been included in the consolidated financial statements since that date.

The aggregate purchase price was $500 of cash.

The estimated fair value of the assets acquired at the date of acquisition was $500. No liabilities were assumed at the date of acquisition.



CORPORATE INFORMATION

Board of Directors Officers

Steven M. Collicutt (2) (3) Steven M. Collicutt
President and Chief Executive President and Chief Executive Officer
Officer
Collicutt Energy Services Ltd.
Andrew S. Cruickshank, CA, CPA
Edward Kernaghan (2) Chief Financial Officer
President
Principia Research Inc. D. Scott Collicutt
Vice-President, Sales & Marketing
Frank Tirpak (1) (2)
President and Chief Executive Ted Melissen
Officer Vice-President, Fabrication
Lonkar Services Ltd.
Solicitors

Gary W. Harris (1) (3) Duhamel, Manning, Feehan, Warrender,
President and Chief Executive Glass
Officer Red Deer, Alberta
Westward Parts Services Ltd.
Tingle Merritt LLP
Peter A. Lacey (1) (3) Calgary, Alberta
President and Chief Executive
Officer Davis and Company LLP
Cervus LP Calgary, Alberta

(1) Member of Audit Committee Investor Relations Information
(2) Member of Compensation
Committee Requests for information should be
(3) Member of Corporate directed to:
Governance Committee
Steven M. Collicutt
Corporate Secretary President and Chief Executive Officer

Gerard N. Feehan Andrew S. Cruickshank, CA, CPA
Duhamel, Manning, Feehan, Chief Financial Officer
Warrender, Glass
TSX Trading Symbol: COH
Auditors
PricewaterhouseCoopers LLP Corporate Office
Chartered Accountants
Edmonton, Alberta Collicutt Energy Services Ltd.
7550 Edgar Industrial Drive
Banker Red Deer, Alberta T4P 3R2

HSBC Bank Canada Telephone: (403) 358-3200
Calgary, Alberta Facsimile (403) 358-3210

Registrar and Transfer Agent Website: www.collicutt.com

Computershare Trust Company of
Canada
Calgary, Alberta and Toronto,
Ontario



Contact Information

  • Collicutt Energy Services Ltd.
    Steven M. Collicutt
    President and Chief Executive Officer
    (403) 358-3200
    (403) 358-3210 (FAX)
    Website: www.collicutt.com
    or
    Andrew S. Cruickshank, CA, CPA
    Chief Financial Officer
    (403) 358-3200
    (403) 358-3210 (FAX)
    Website: www.collicutt.com